Retirement - Annuities

Every Individual born has to undergo various transitions in his life. Retirement is a stage where an individual has to depend on others to lead the rest of his life, or Retirement can also be caused due to some disability, disease or widowhood.The Annuities can be better defined as the contract sold by insurance companies that pays an income on a monthly or for certain intervals of time in the benefit for the life of a person (the annuitant).

Annuities can be either for the lives of two or more persons, or for a specified period of time. To illustrate this let us consider an example of the payment received by retirees from their pension plan.

There are two main classification of Annuities: Certain Annuities and Contingent Annuities. Under an Annuity certain, a specified number of payments are made, after which the annuity stops.

A fixed annuity requires payment in a specified amount to be made for the term of the annuity regardless of economic changes due to inflation or the fluctuation of the ventures in which the principal is invested.

With a contingent annuity, each payment depends on the continuance of a given status; for example, a life Annuity continues only as long as the recipient survives. Contingent annuities such as pension plans or life insurance depend on shared risk. Everyone pays in a fixed amount until the annuity begins some will not live long enough to receive back all the money they have paid, while others will live long enough to collect more than they have paid

More forms of annuities are given below :

The first is the Straight annuity is a contract between the insurance company and the annuitant to make variable payments at monthly or yearly intervals. This kind of the is payable to an annuitant only during the annuitant's lifetime and it ceases upon his or her death. The size of the periodic payment is usually fixed based upon a predefined actuarial charts that project the expected life span of a person based upon age and physical condition. Generally this kind of annuity often contains provisions that promise payment to be made to a secondary beneficiary, named by the annuitant to receive benefits in case of the annuitant's death. This can also be forwarded to the annuitant's heirs for a period of time even if the annuitant has died before the expiration of the designated period.

The second type of Annuity is the Refund annuity also called as the cash refund annuity, is a policy that promises to pay a set amount annually during the annuitant's life. In case the annuitant dies before receiving payments for the full amount of the annuity, his or her estate will receive a sum that is the difference between the purchase price and the sum paid during the annuitant's lifetime.

And the third annuity is one that is payable to two named persons but upon the death of one, the annuity ends. A joint and survivorship annuity is a policy payable to the named annuitants while they are alive and continues for the benefit of the surviving annuitant upon the death of the other.